How do funeral plans work? In the UK, they are a simple and cost-effective way of paying for a future event today to reduce the burden then. It may be for you, your parents, your children or even your staff.
These are some things to bear in mind if you’re thinking of taking out a plan:
What is NOT a funeral plan? An Over 50s insurance will probably NOT pay for your funeral as most of them pay out a fixed amount – see this page. We believe funeral cost inflation will continue, and anything which is not at least rising in line with general inflation has no chance of covering the burial or cremation in full or even nearly.
Funeral Plans are designed to pay for just one thing, specifically. Some guarantee to cover practically everything, others guarantee just one part of the costs with an allowance for the rest (which is why our research team can help you so much.) Funerals are expensive, a friend recently paid £4795 for his mothers, and an absolutely identical one could have been purchased via a prepaid plan for less than £3,300. Many people worry that they won’t leave enough money behind for it, and they don’t want to be a burden. With (good) prepaid plans, you pay for it in advance, so inflation becomes almost irrelevant. You can, if you wish, make the detailed arrangements too.
How do funeral plans work?
You can pay either a lump sum or instalments to the plan provider. These are invested in one of two ways:
1) Your money is put into an independent trust fund with trustees whose job it is to manage the funds to ensure there is enough to pay for your funeral. A specialist Actuary (see at foot) will review the fund and the ages of the plan holders at least every 3 years to confirm that the fund can meet any reasonable eventuality. Accountants scrutinise the accounts every year.
2) Your money is invested in a specialist insurance fund, which is then used to pay for the funeral whenever that turns out to be. Both methods aim to safeguard your money until it’s needed, ensuring that it’s used to provide the funeral you have paid for. But that is NOT what Over 50s non-profit whole of life plans do – they have NO investment element at all as far as you are concerned.
The Financial Conduct Authority effectively (wrong word) regulates funeral plans from July 2022, which will have a disastrous effect on competition and the availability of Independent Advice – so it will be buyer beware and make sure you truly understand what you are buying.
As at March 2022, the FCA are not discouraging the sale of the worst type of plan on the market, the non-profit whole of life. They are high commission paying life insurance with NO CASH VALUE ever, just a death benefit as long as you never miss more than a couple of contributions and make them up quickly. It would be interesting to know how many people lose out entirely, and how many of these over 50s insurances are actually claimed on. It is scandalous that around 500,000 of these awful plans are sold annually.
At the point of need, the Trustees or the company will pay the funeral director appointed under the plan and the family will only have to pay for any additions or matters not covered by the plan, massively reducing the financial and emotional load. It is vital that the family know about the plan and activate it in the correct way.
- Is your plan a non profit whole of life plan with no possibility of a cash value except at death?
- Can you choose the undertaker?
- What if your undertaker goes out of business?
- What if the person the plan is intended for dies away from home or abroad?
- Can the undertaker arrange a funeral of a different standard from the one you have chosen?
- Will there be any other expenses, and who pays those?
- Can I cancel the plan if circumstances change – for example, if you’ve arranged for your spouse’s funeral but you later separate?
- Are there any cancellation charges?
- If I take an instalment plan, what if I die before all the instalments are paid?
- Pay by instalments, how long for and is their interest?
- Can I change the details of my funeral plan?
What are Funeral Plans – Top tips
- Make sure you have a written record of the funeral planning arrangements and keep it safe. Your family will need to know where your records are. You should receive a plan confirmation. Why not join Will Custodians Peace of Mind Service and keep details with your Last Will and Powers of Attorney?
- Make sure your family and any carers know you have already paid for your funeral plans and whom to contact.
- Check to see that the plan provider has a clear complaints procedure, and ideally is a member of the Funeral Planning Authority, the industry’s professional body. Members must follow its standards when dealing with you and when considering any complaints.
- If you have any questions on how do funeral plans work, please do get in touch. Our job is to find the best value for the one which suits your wishes and pocket, but we are happy to answer general questions so you can make an informed choice. All of our recommendations are posted will all of the relevant information so you can decide in your own time which one is right for you.
Actuaries monitor Trust-Based Plans. What is an Actuary?
How do funeral plans work?